Last month, there were some online rumors that Crescendo Ventures was planning to follow Worldview Technology Partners and Mobius Venture Capital into the dustbin of VC history. Such speculation was likely based on Crescendo’s dismal track record and subsequent inability to find many takers for a new fund, but was disputed by both GP and LP sources. They told me that Crescendo would restart fund-raising late this year, with an eye toward closing by mid-2007. This is all well and good, but doesn’t really answer the larger question: Should Crescendo bother?

Let me preface what follows by saying that I personally like David Spreng, the founder, managing general partner and sole key-man at Crescendo. Few other VCs are as forthright when their firms have organizational troubles (of which Crescendo has had a bunch), and he neither yelled nor screamed last night after hearing that I had obtained Crescendo’s most recent quarterly report to limited partners. He made his case, to be sure, but did so as transparently as possible. He truly believes that Crescendo is poised to turn the corner, despite having “dug a huge hole.”

Crescendo Ventures raised around $640 million for its fourth fund in September 2000, of which 97.5% was called down as of June 30. This means that it has just over $15 million in pure dry powder, but also has around $37 million in cash on-hand and the ability to recycle another $58 million. This gives Crescendo a grand total of $110 million to make around five more new investments (two term sheets nearing signatures), plus continue to support follow-on rounds for 18 of its 25 active portfolio companies. Among those portfolio companies not expected to need additional cash are BroadSoft (considering an IPO) and SOISIC (has received acquisition offers from ARM and Soitec).

Both BroadSoft and SOISIC, however, are currently valued at substantially less than Crescendo originally paid for them. This isn’t terribly surprising, since Fund IV is deeply underwater. Of the 25 active portfolio companies, only six are being held above-value (Crescendo only marks to recent financings or realizations). The remainder is either below-value (8) or being held at cost (11). Crescendo also has disposed of 21 companies, not including a handful of “pre-seed” deals that got written off at around $0.33 on the dollar. Of the disposed companies, 12 were written-off completely, while most of the others represented steep losses. In fact, Crescendo only has one positive realization: Sistina Software, which was acquired by Red Hat at around a 3x return for Crescendo. Moreover, Sistina was led by former Crescendo partner Jeff Hinck, who since has moved on to Vesbridge Partners (which is having its own fund-raising troubles).

It would be easy to dismiss these troubles by pointing out that Crescendo IV was raised just before the bubble burst, but that wouldn’t help explain why its previous fund – closed in 1998 – also is underwater (as is 1997’s World Fund). So how does Crescendo plan to tempt LPs?

The answer is twofold. First, Spreng is issuing a flurry of mea culpas. Not only does this mean apologies for a drifting investment focus that has occasionally included both med-tech and telecom, but also for creating an investment team that was painfully short on operating experience (since resolved). Second, and more important, Spreng will argue that Crescendo actually has performed well since fixing the two aforementioned problems in late 2002.

“We drew a line in the sand in 2002, and basically restarted out firm and portfolio,” Spreng explains. “We dug a huge hole for ourselves, but have been working diligently ever since to climb out of it.”

He claims this post-2002 portfolio is top-quartile, and I have not seen any IRR numbers that either validate nor invalidate the claim (although top-quartile claims should always be met with skepticism). Of Crescendo IV’s active portfolio companies, nine received their initial Crescendo investment prior to the “line in the sand,” while the other 1619 got funded afterward. At first glance, Spreng seems to be correct. After all, eight of the early companies are being held below-cost, while just two of the later ones are. What this neglects, however, is that the later portfolio also includes just twosix companies being held above-cost, while the remainder are at-cost. In other words, the new strategy has proven more break-even than breakout.

So should Crescendo bother to raise another fund? It’s too early to tell.

The firm does have some promising portfolio companies (Pure Digital, for example), but cannot successfully pitch Fund V by talking about revenue growth and customer acquisitions. Instead, it needs a bunch of positive realizations, and needs them fast. This also means that the firm should reconsider its plan to keep making new deals, since it smells of desperation. Give money back to LPs instead of recycling, and pour all efforts into the existing portfolio. I realize that Crescendo’s LP base is largely dumb money -- some U.S. public pensions sprinkled among overseas backers – but gullibility only goes so far.

As an LP recently told me about Crescendo: “Get some positive realizations, or get out.” That’s sage advice for Crescendo, and for the VC market at large.

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Intranasal Therapeutics Inc., a Lexington, Ky.–based developer of nasally-delivered, preservative-free drug products, has raised $39.1 million in Series A funding. SV Life Sciences led the deal, and was joined by Burrill & Co., Tullis-Dickerson, Fidelity Biosciences, ApjohnVentures, Fort Washington Capital, Commonwealth Seed Capital and Kentucky Co-Investment Partners (U Kentucky). www.intranasal.com

I-Flex Solutions (Bombay: IFLX.BO) has agreed to acquire Mantas, a Herndon, Va.-based anti-money laundering and compliance software, from Safeguard Scientifics. The deal is valued at $122.6 million, and will be partially financed via a new $125 million investment in I-Flex from Oracle. www.iflexsolutions.com

EQT Partners of Sweden is planning to raise up to €1 billion via a public flotation, according to The Wall Street Journal. www.eqt.se

VC Deals

Egenera Inc., a Marlborough, Mass.-based provider of datacenter virtualization architecture, has raised $26 million in Series E funding. Pharos Capital Group and Fujitsu Siemens Computers co-led the deal, and were joined by return backers Austin Ventures, CSFB Private Equity, Kodiak Venture Partners, Goldman Sachs, Crosslink Capital, Spectrum Equity Investors, Technology Crossover Ventures and Lehman Brothers. Egenera has raised around $165 million in total VC funding since its 2000 inception. www.egenera.com

Fallbrook Technologies Inc., a San Diego-based provider of tech and IP licensing focused on vehicle transmissions, has raised over $16 million in Series C funding at a pre-money valuation of $120 million. No investor information was disclosed. www.fallbrooktech.com

Plextronics Inc., a Pittsburgh-based developer of active-layer technology for printed electronic devices, has raised $13.1 million in third-round funding (Series A). Birchmere Ventures led the deal, and was joined by firms like Firelake Capital and Draper Triangle Ventures. Plextronics has raised $16.4 million in total VC funding since its July 2002 inception. www.plextronics.com

Technorati Inc., a San Francisco-based blog search engine, has raised a total of $10.52 million in Series C funding. Return backers include Draper Fisher Jurvetson and Mobius Venture Capital. www.technorati.com

InfraReDx Inc., a Burlington, Mass.-based developer of photomedical techniques and catheter-based systems to diagnose and treat cardiovascular conditions, has secured $10.5 million of a $30 million Series B-1 round, according to a regulatory filing. Backers include Sanderling Ventures and the Seahawk Investment Trust. www.infraredx.com

StemCyte Inc., an Arcadia, Calif.-based umbilical cord stem cell blood bank, has secured $9.05 million of a $13 million third-round deal, according to a regulatory filing. Backers include Sycamore Venture Capital, Asia Star IT Fund and National Technology Enterprise Co. of Kuwait. The filing did not list W.I. Harper Group, but StemCyte remains listed on that firm’s website. www.stemcyte.com

CircleLending Inc., a Waltham, Mass.-based manager of loans between relatives, friends and other private parties, has secured over $8 million of a $10 million Series B round, according to a regulatory filing. Backers include Venrock Associates, Monitor Company, Intel Capital and the Omidyar Network. www.circlelending.com

Movaris Inc., a Cupertino, Calif.-based provider of financial control management software and services, has raised $6 million in Series C-1 funding, according to a regulatory filing. Return backers include Adobe Ventures, Granite Ventures, Redpoint Ventures and Mohr, Davidow Ventures. www.movaris.com

RevCube Media Inc., a San Francisco-based provider of online customer acquisition technology and services, has raised $6 million in Series C preferred stock and Series D warrants, according to a regulatory filing. VantagePoint Venture Partners led the deal, and was joined by TransCosmos and Generation Capital. www.revcube.com

NeatReceipts, a Philadelphia-based provider of scanning solutions for individuals and small businesses, has raised $5.5 million in Series B funding from Edison Venture Fund. VentureWire reports that the total deal was $5.9 million at a post-money valuation of around $18 million. www.neatreceipts.com

Decentral.tv Corp., a San Rafael, Calif.-based developer of an interactive television network, has raised $2.25 million in Series A funding, according to a regulatory filing. Backers include Draper Fisher Jurvetson, Draper Richards and Draper Associates. www.decentral.tv

Buyout Deals

The Jones Apparel Group (NYSE: JNY) has taken itself off the auction block, according to The NY Times. Jones had been looking to generate $5 billion (or over $35 per share), but suitors like Bain Capital, Cerberus and Texas Pacific Group would not meet that price.

Royal Ahold NV is facing shareholder pressure – specifically, two hedge funds – to sell its U.S. division.

Dixie Chemical Company Inc. of Houston, Texas has raised an undisclosed amount of private equity funding from Glencoe Capital. www.dixiechemical.com

California Family Health Inc., an operator of health and fitness clubs in and around Sacramento, has raised an undisclosed amount of private equity funding from Bunker Hill Capital. www.californiafamilyfitness.com

PE-Backed IPOs

ActivBiotics Inc., a Lexington, Mass.-based developer of antibacterials for high-value chronic and infectious diseases, has filed to raise $46 million via an IPO. It plans to trade on the Nasdaq under ticker symbol ACTV, with HSBC serving as lead underwriter. Shareholders include HealthCare Ventures (33.3% pre-IPO stake), Advent Ventures, MDS Capital, Delphi Ventures, VenGrowth and the Canadian Medical Discoveries Fund. www.activbiotics.com

PE Exits

Hospira (NYSE:HSP) has offered to acquire BresaGen Ltd. (ASX:BGN) for around US$15 million. BresaGen is a manufacturer of biogenerics and a contract developer and manufacturer of proteins and peptides using recombinant DNA techniques.Last year, Bresagen raised PIPE financing from Australian private equity firm Paragon Equity.

Copeland Sports, a San Luis Obispo, Calif.-based sporting goods retailer, has filed for Chapter 11 bankruptcy protection. The move will enable company founders to buy Copeland Sports company back from Bruckmann, Rosser, Sherill & Co., which acquired a majority stake in 2002. www.copelandsports.com

A.D.A.M. Inc. (Nasdaq: ADAM) has acquired OnlineBenefits Inc., a Uniondale, N.Y.–based provider of benefit management solutions for small and mid-sized employers. The deal was valued at $32.5 million, including $1.5 million in assumed debt. A.D.A.M. partially financed the deal by issuing $3 million of restricted common stock and arranging a $27 million credit facility from CapitalSource. OnlineBenefits had raised around $27 million in VC funding from firms like Firemark Advisors, Pennell Venture Partners, Grand Central Holdings, Sandler Capital Management and GE Equity. www.adam.comwww.onlinebenefits.com

Dow Corning Corp. has acquired the assets of Aprilis Inc., a Maynard, Mass.-based developer of holographic data storage systems that help companies store, manage and access large volumes of data. No financial terms were disclosed. Aprilis had raised around $20 million in VC funding from Dow Corning and Zero Stage Capital. www.dowcorning.comwww.aprilisinc.com

Provenance Ventures has closed its inaugural fund with $10 million in capital commitments. The Los Angeles-based firm will focus on early-stage media and communications companies that can help “advance society.” www.provenanceventures.com

Pantheon China Acquisition Corp., a Beijing-based blank check acquisition company focused on companies with principal operations in China, has filed to raise $30 million via an IPO. EarlyBird Capital is serving as sole underwriter. Management includes chairman and CEO Mark Chen, a venture partner with Easton Hunt Capital Partners.

Human Resources

Natural Gas Partners has promoted Tony Weber to managing director. He joined NGP in 2004 as a principal and director of corporate finance. www.naturalgaspartners.com

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